The fugitive gunman Raoul Moat remains at large in a remote area of Northumberland this morning, five days after he was suspected of shooting his ex-girlfriend, killing her new boyfriend and shooting and seriously injuring a policeman.

A manhunt was launched yesterday in and around the picturesque village of Rothbury involving hundreds of officers from six forces, armed units, helicopters and paramedics on standby in case of a fire-fight.

A two-mile exclusion zone was thrown around the village and residents were ordered to lock their doors and stay inside as police scoured the area.

As dusk approached police said they remained convinced the 37-year old bodybuilder was holed up in the vicinity, which includes dense woodland and remote hillsides dotted with disused farm buildings.

He is believed to be armed with two shotguns and supplies of ammunition. Earlier detectives had said they believed the net was "closing in".

During a dramatic day in an otherwise sleepy part of the country, scores of heavily armed police scoured the fields and woods close to the village for Moat, who has pledged to "keep killing police until I am dead".

Police teams in body armour scaled the high moors above Rothbury in the afternoon, meticulously checking the rolling land around the village as it appeared that Moat, who likened his violent rages to the fictional Hulk, had been living rough in the area since Saturday, evading hundreds of officers. Moat is understood to know the area well. A previous girlfriend, Yvette Foreman, 35, lives in Rothbury.

"We'd go camping and fishing here loads when we were younger, almost every weekend, and he knows the woods and hills like the back of his hand," she said.

A spokesman for Northumbria police said they were "locking down" a large area around Rothbury, although some restrictions were eased .

"This is a two-mile exclusion zone on the ground. In addition there is a five-mile, 5,000ft air exclusion zone."

In a surprise development yesterday morning police arrested two men in Rothbury in connection with the case. They were originally thought to have been held hostage by Moat and police had ordered a news blackout, but they were subsequently seized on suspicion of conspiracy to murder after being discovered close to a black Lexus saloon car, thought to have been driven by Moat, which was found at the eastern edge of the village.

There were also at least two reported sightings yesterday of a man thought to be Moat in the vicinity of the village. A farmer said she believed he had camped with his accomplices in a secluded spot close to the river from where she saw smoke rising in the morning. Boards blocking up a disused farm building nearby had also been removed.

Jessica Taylor, 26, who runs Wagtail farm, was checking her stock early in the morning when she noticed smoke coming from an apparently improvised campsite in a well-hidden spot surrounded by trees. "They were definitely camping there," she said. "I thought it was suspicious and went to the police. I thought it could be him, so I didn't want to go up there."

Police imposed a shutdown of the village yesterday morning, ordering residents to lock their doors and stay inside while armed officers in body armour and helmets patrolled the streets using loud-hailers to try to reassure them.

Pupils at the village middle school took lessons behind closed blinds and curtains and were not allowed out at break.

"If anyone appears from their door the police are on top of them, telling them they are not allowed out," said Josephine, a bar worker at the Newcastle Arms. Police searched car boots in the region amid fears that darkness would help Moat escape and hinder the police operation. Excerpts of a 49-page letter written by the fugitive to police published yesterday revealed that he now considers himself "at war with Northumbria police".

Villagers said the Lexus thought to have been driven by Moat had been spotted in the village as early as Saturday and had been parked near a small industrial estate from at least Monday afternoon. An employee at the Home Bakery on the industrial estate, who asked not to be named, said he saw the car over the weekend and was suspicious enough to take down its registration.

"The Lexus was seen this morning around here," he said. "I also saw it on Saturday morning just 20 yards from where I am now. I saw two young men get out of it. I made a note of the registration number because I wondered if it was illegal camping. Neither of them were the man they are looking for." He said police told the bakery staff to "lock your doors" and workers due to clock on shortly are not able to get in to begin their shifts. "We are concerned," he said. "My little boy is 11 and is up at the school about one mile away."

At the Dr Thomlinson Church of England middle school in Rothbury tearful children were picked up by parents at the end of the day under the gaze of armed officers and a police helicopter overhead. At about 12.45pm, one pupil said some nine-year olds had caught sight of a man they worried was Moat and became upset.

Claire Shiell, whose daughters Nichola, 11, and Samantha, 10, attend the school on the outskirts of the village near where police yesterday night said they believed Moat was hiding, gave them a hug as she took them home. "It's frightening but the police are doing what they can," she said.

Children brought out of the town stopped at the roadblocks to describe the day's events as "very scary – like being in the sort of thing you see on TV". Graham Elson, an animal photographer, said he thought he saw Moat and two other men on Sunday. "There were three of them walking up the lane from the business units and they said 'Evening, sir' which was unusual – nobody ever calls me 'sir'," he said. "The one in the middle was a big, tall man, very much like the descriptions of Moat. The two with him didn't look at all worried. If they were the ones they're calling the 'hostages', they must be cool customers. It all looked very amicable."

There were flurries of activity throughout the day as police responded to reports. People unable to reach home were directed to a centre at Hesleyhurst, but most preferred to hole up with friends, relatives or at local pubs. Chief Superintendent Mark Dennett, area commander for Northumberland, said the search of the area could still take several hours. Earlier in the day, police had stressed it was just one of several locations being investigated. "This is a fast-moving and dynamic situation and we still have two still in custody from this morning, who are an integral part of this inquiry," he said. "Members of the public are advised to remain indoors and await further instructions. Anyone visiting Rothbury is advised not to travel at this stage.

"Raoul Thomas Moat is still potentially at large and we are undertaking a search in what is a significant and challenging geographic area and it may take several hours.

"There are armed officers on the streets of Rothbury and we understand this may concern people but this is a precautionary measure to protect and reassure them. I want to thank the people of Rothbury for their support and patience and ask for their continued cooperation and understanding at this difficult time."

In Fenham, west of Newcastle city centre, a neighbour reported seeing Moat near his home on Thursday, the day of his release from Durham prison, dressed "as if to go to war."

Police also said Moat had been arrested on 12 previous occasions, and charged with seven offences.

Prison guards gave police a written warning that Moat planned to kill when he was released from jail and passed a security information report to Northumbria police following his release. This aspect of the case has been voluntarily referred, by temporary chief constable Sue Sim, to the Independent Police Complaints Commission.